In a recent Hong Kong Stock Exchange’s (HKEX) disciplinary action, a GEM listed issuer (Company) and all members of its board at the material time were sanctioned for failure to disclose the Company’s subscription of wealth management products issued by banks in the People’s Republic of China. 

One of the independent non-executive directors, who retired in August 2021, was further imposed a director unsuitability statement for failure to respond to HKEX investigation.

HKEX notified in a statement that between 2018 and 2020, the Company entered into 91 wealth management product subscriptions which were discloseable or major transactions without complying with disclosure requirements under GEM Listing Rules. 

The Company explained in an announcement of 18 May 2021 that it mistakenly believed that the wealth management products were cash or cash equivalents – and subscription of such products would not constitute a transaction under the Rules.

HKEX subsequently released FAQ No. 074 (21 May 2021) reminding that issuers in acquiring wealth management products (e.g., index or asset linked deposits) from a licensed bank for treasury management purpose are required to aggregate their investment in wealth management products acquired from the same bank; and set out the computation method of the relevant percentage ratio.

Reminder: Issuers are reminded that acquisitions or disposals of wealth management products or other investment products are transactions under the Listing Rules, subject to announcement and/or shareholders’ approval requirements.